With federal market uncertain, firms seek commercial business

Dec. 18, 2012 - 03:33PM
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As agencies decrease contract spending, contractors are diversifying their portfolios to include more commercial business, according to preliminary results from a Grant Thornton survey of about 100 contractors.

The contractors view federal business as high-risk for several reasons, including a shift by agencies to use more firm, fixed-price contracts, which many view as putting more risk on industry, and an increased regulatory environment, according to Lewis Crenshaw, a retired Navy vice admiral and principal with Grant Thornton. Crenshaw shared the findings last week at an Association for Federal Information Resources Management event.

Contractors also are concerned about provisions in the 2013 Defense authorization bill, which is now before a House-Senate conference committee to resolve differences in the House- and Senate-passed versions:

 They support a provision to modify past legislation and shield contractors from paying the full cost of replacing counterfeit parts sold to the government. The provision is in the House version of the bill, not the Senate’s. When reports surfaced in Congress last year that the Pentagon shelled out $2.7 million to fix counterfeit memory chips embedded into computers of the country’s primary missile defense system, the Terminal High Altitude Area Defense system, Sen. Carl Levin, D-Mich., was outraged. He said the contractor should be responsible. The Pentagon later reported that it charged THAAD’s contractor, Lockheed Martin, for the costs. Whether Levin and other senators oppose financial liability protection for contractors is unclear.

 Industry has also raised concerns about a provision in the Senate version of the bill that requires defense contractors cleared to receive and store classified information to report cyber intrusions on their information systems or networks. There is concern that the Defense Department would have access to portions of contractors’ networks and information systems unrelated to DoD and its data. DoD already has programs set up for industry to share information about cyber intrusions and is looking to expand them.

Another issue is that contractors are often asked to do work that isn’t within the scope of their contracts, according to survey results. Eight-five percent of those surveyed said the government frequently or occasionally asks them to perform work outside the scope of their contracts. More than half said they sometimes do the work and about 10 percent said they always do the work.

Less than a quarter of contractors said they ask to be compensated for the additional work. They are essentially doing free work, Crenshaw said. That’s something to think about as contractors’ profit margins shrink, he said.